Outside Pressure Grows for GM to Oust Wagoner

By

John D. Stoll and

Greg Hitt

Updated Dec. 8, 2008 12:01 a.m. ET

DETROIT -- General Motors Corp.GM-1.25% Chairman and Chief Executive Rick Wagoner is coming under increasing pressure from outside the company to resign as part of any broad bailout of the auto maker by the federal government.

On Sunday, Sen. Christopher Dodd (D., Conn.), a supporter of emergency loans for Detroit, suggested Mr. Wagoner should go if the government follows through and provides billions of dollars to help the auto giant restructure and return to profitability.

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Rick Wagoner
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"I think you've got to consider new leadership," the senator said on the CBS talk show "Face The Nation." A Dodd aide said later the senator's demand for change would not be a "condition written into the" rescue package coming together on Capitol Hill, and draft legislation prepared by top Democrats doesn't make that explicit requirement. But Mr. Dodd's displeasure was clear. "If you're going to restructure, you've got to bring in a new team to do this," he said. "I think [Mr. Wagoner] has to move on."

President-elect Barack Obama, speaking at a news conference in Chicago Sunday, also suggested the Big Three may have to make management changes as part of a bailout, although he stopped short of naming Mr. Wagoner directly.

"If this management team that's currently in place doesn't understand the urgency of the situation and is not willing to make the tough choices and adapt to these new circumstances, then they should go," he said.

Mr. Dodd and other Democrats on Capitol Hill are hoping for a vote on bailout legislation as soon as Tuesday to avoid a collapse of either GM or Chrysler LLC. Both companies have said they need billions of dollars this month to be able to stay in business.

In weekend negotiations, the White House and top Democrats zeroed in on a package that would provide $15 billion in short-term financing, enough to carry the companies into March. The money would be drawn from an existing loan program meant to help the Big Three retool to meet higher fuel-economy standards. Most of the funds would go to GM and Chrysler. Ford Motor Co.F-1.79% has said it only needs a line of credit from the government that it can tap if the U.S. recession proves longer and deeper than expected.

Mr. Obama expressed support for the effort to provide short-term financing. But he made clear he wants strong protections for taxpayers, and also wants a program that will force a restructuring that makes the industry more cost-efficient, environmentally friendly and globally competitive.

"What I think we have to put an end to is the head-in-the-sand approach to the auto industry that has been prevalent for decades now," Mr. Obama said on NBC's "Meet the Press."

Bishop Ellis brings a special message entitled "A Hybrid Hope," calling people to pray for the auto industry. Reuters

Even if all the parties are able to work out a deal for short-term aid, GM and Chrysler will still have to come back to Washington after Mr. Obama and the new Congress take office. GM has asked for a total of $18 billion in government loans and Chrysler $7 billion. Both companies together have applied for more than $10 billion in additional loans through the Energy Department program to help them improve fuel efficiency.

In a statement, a GM spokesman said the company "appreciates" Sen. Dodd's comments but added GM's employees, dealers, suppliers and its Board of Directors "all support Rick Wagoner and are confident he is the person to lead GM through these difficult times."

But calls for Mr. Wagoner and others to step down appear to be growing. In a statement from his office Sunday, Sen. Charles Schumer (D., N.Y.), said that, "while it can't happen tomorrow because of the urgency of the companies' financial situation, I would like to see management changes as part of any restructuring."

On Sunday, Jerome B. York, an adviser to billionaire investor Kirk Kerkorian who served as a GM director in 2006 when Mr. Kerkorian owned a stake in the company, called publicly for sweeping change at GM.

"Aside from a failure of leadership at the most senior executive management level, GM has five long-serving directors who have been on the board 10 years or more," Mr. York said in a telephone interview. "They have approved of and overseen many of the moves that have contributed to the company's troubles. They should also resign."

Possible successors for Mr. Wagoner could include GM President Frederick "Fritz" Henderson, who took over responsibility for GM's auto operations from Mr. Wagoner earlier this year. Outside replacements could include Nissan Chief Executive Carlos Ghosn. With the right personal financial incentives, Mr. Ghosn might accept, suggested Jeffrey Sonnenfeld, a senior associate dean at Yale University's School of Management who has written about books about management succession.

Other names that have surfaced are former General Electric Co. CEO Jack Welch and Austin Ligon, who retired early in June 2006 as head of CarMax Inc. Mr. Sonnenfeld says GM directors might seriously consider him because "he has the vision and he knows U.S. cars."

"I do know the car business," Mr. Ligon said in an interview Sunday night. But "I am not the guy to run a big industrial company." Mr. Ligon said he believes that GM needs not just a new CEO but also a whole new board because both management and directors "have just been a disaster."

Mr. Welch couldn't be reached for comment.

In Detroit, some of Mr. Wagoner's perceived allies, including UAW President Ron Gettelfinger, are expected to keep silent on debates over the management issue, according to people familiar with the situation. While Mr. Gettelfinger has publicly been complimentary of GM's CEO in recent years, he has privately criticized Mr. Wagoner for taking too much compensation at times when blue-collar workers were being forced to accept cuts, and for not playing an active enough role in the 2007 labor-contract talks.

Mr. Wagoner's backers on GM's board, including lead outside director George Fisher, credit the CEO with slashing fixed costs, pushing into emerging markets and working out major cost and health-care concessions with the UAW.

But he has also had a part in some of the missteps that have put GM in the position it faces today -- including the heavy use of incentives to drive sales, a heavy reliance on trucks, and a belated recognition of customer interest in hybrids and fuel-saving small cars.

He has been CEO since 2000, a period in which GM's stock price has plunged and its U.S. market share has fallen by nearly a third.

Ford Motor Co.F-1.79% CEO Alan Mulally and Chrysler's Robert Nardelli have come under less criticism than Mr. Wagoner because they were brought in more recently to turn around those companies.

Critics of Mr. Wagoner will get a fresh set of ammunition on Monday when GM runs a full-page advertisement in an automotive trade publication spelling out its need for a bailout and disclosing a candid list of mistakes it has made in the past that has helped lead the auto maker to the edge of collapse.

"While we're still the U.S. sales leader, we acknowledge we have disappointed you," the ad says. "At times we violated your trust by letting our quality fall below industry standards and our designs become lackluster. We have proliferated our brands and dealer network to the point where we lost adequate focus on our core U.S. market."

The ad is an 867-word letter, and is slated to run in the Dec. 8 edition of Automotive News.

After a spurt of progress last week, negotiations over a U.S. government rescue of Detroit's Big Three auto makers slowed over the weekend as Congress and the White House debated creating a body that would oversee a restructuring of the industry. One stumbling block was how much authority President George W. Bush and Mr. Obama would have over the bailout.

The White House is proposing to create a "financial viability adviser" in the Department of Commerce, which would be empowered immediately to bring industry stakeholders together to begin negotiating plans to return each company to economic viability. The adviser would be authorized to approve short-term financing for the industry, according to a draft of the plan.

The proposal would give Mr. Bush a big say over the proposed bailout -- and an ability to wring concessions from the industry -- in his final days in office.

Top Democrats in Congress also want strong government oversight, but instead of a single person are pushing a seven-member board headed by a strong chairman who be given the task of helping the industry restructure. The board would include the secretaries of Treasury, Energy and Transportation. Late Sunday, Democrats proposed an alternative under which taxpayer dollars would flow by Dec. 15. Under the Democratic proposal, which is designed to preserve a role for Mr. Obama in the process, the board and its chairman would oversee the industry's restructuring and would still have leverage to force concessions. But the pressure would come amid debates about the industry's long-term financing needs, congressional aides said.

Also under the Democratic proposal, the companies would be required to notify the board of transactions over $25 million. The Government Accountability Office, an investigative arm of Congress, and the special inspector general overseeing the financial-market rescue would have oversight authority over the auto rescue. In January, the new empowered auto board would be given the task to develop broader, general restructuring goals for the companies, and would help develop those plans, which the companies would be required to submit to the government by the end of March. Beginning in February, after Mr. Bush leaves office, the board would have the authority to "call" the government loans, if restructuring plans are now on track, congressional aides said.

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